Argentina holdouts saga

It has not exactly been the January that some investors were hoping for in Argentina.

The notorious “Rufo” clause (for rights upon future offers) in restructured debt contracts appears to have been the red herring that many had warned it was when the government cited it as an excuse for not cutting a deal with the holdouts last year, triggering Argentina’s default in July. Read more

Last week, Cleary Gottlieb – the US law firm representing Argentina in its debt negotiations – held a packed closed-door session on Venezuela. The question of the day was: what if Venezuela defaults? This week, the US Senate passed a bill that seeks to sanction Venezuelan officials for alleged human rights violations. Although these two events are not obviously related — and the sanctions bill still has to be approved by Congress, and signed into law by Barack Obama — they could become so. They both also illuminate the horrible mess that Venezuela could be heading into. Read more

José Antonio Ocampo, a former United Nations official and co-president with Prof. Joseph Stiglitz of Columbia University’s Initiative for Policy Dialogue, which promotes the adoption of heterodox economic policies in developing countries, recently wrote a guest post welcoming a UN General Assembly resolution calling for the launch of negotiations on a multilateral framework for sovereign debt restructuring. The resolution was Argentina’s initiative and it passed with the backing of a coalition of developing countries (the so-called G-77 plus China) in the wake of, as Ocampo put it, “the absurd decisions of a New York judge on Argentine debt.” Read more

On September 9, the United Nations General Assembly approved a resolution to launch negotiations on a multilateral framework for sovereign debt restructuring. The vote was overwhelmingly in favour of the resolution: 124 in favour vs 11 against with 41 abstentions. But it was a deeply divided one. It was essentially approved with the votes of developing countries, but the no votes included the US, Japan, Germany and the UK; the remaining European Union members abstained.

This is, of course, a continuation of the saga of the absurd decisions of a New York judge on Argentine debt: the decision to force the country to pay on the original terms to holders of bonds not tendered at the 2005 and 2010 renegotiations, the ratification of this verdict by the New York Court of Appeals, and the decision of the US Supreme Court not to consider an appeal by Argentina against the latter decision. Read more

The bust-up between Argentina and its holdout creditors is getting uglier by the day. As the “vulture funds” do their best to prove that there is corruption at the highest levels of government, President Cristina Fernandez responded yesterday by accusing them of engaging in terrorism.

The increasingly dirty fight comes as the holdouts disdainfully reject the possibility that a deal with the private sector might materialise, so rescuing Argentina from its default situation. Aurelius Capital Management said on Wednesday that none of the offers presented by a group of Wall Street banks were even “remotely acceptable.” Read more

Argentina’s debt default at the end of last month might have been expected to plunge emerging markets into a new paroxysm of panic. But the saga has for the most part been brushed off by fixed income fund managers.

True, prices of Argentine bonds have fallen, but not by very much. An issue due in 2033 actually gained slightly last week to close on Friday at 84 cents on the dollar, down from 96 cents two weeks ago but well above its 2014 low of 65 cents, let alone the 20-30 cents in the dollar level to where defaulted Latin American paper might have been expected to sink.

While global markets watched the clock tick down on Argentina’s default this week, the holdout creditors’ camp would have already started considering redoubling their efforts to extract payment from Argentina. The potential for NML to target Argentina’s overseas assets could provide the next twist in the tale – and set a precedent for exposing previously hidden transactions and assets in other emerging markets and worldwide. Read more

Who will jump first in Argentina’s game of chicken with its holdout creditors as they race towards the abyss of sovereign debt default? Or will both drive off the edge?

Although just a few days remain until Argentina’s July 30 deadline to make bond interest payments – a failure to do so would result in default – it is still possible that one of the two parties will make a last-minute concession that would allow a deal to be made. Indeed, if a compromise is made, it is most likely to come at the eleventh hour. Read more

As Argentina comes to terms with its 1-0 defeat by Germany, it is already half time in a critical showdown with so-called “holdout” creditors.

Two weeks have elapsed since Argentina entered a month-long grace period after failing to make interest payments to bondholders on June 30, and two weeks remain until it will default for a second time in a dozen years if those payments have still not been made by July 30. Yet talks with the holdouts appear to have made precious little progress so far. Read more

It hasn’t been a good few days for Argentina’s government. First, a New York court ruled to block payments on its restructured debt, leaving the country teetering on the brink of its second default in 13 years. Then, in another judicial blow – this time from Buenos Aires – vice president Amado Boudou was formally charged in a corruption scandal.

Boudou heard about the decision late on Friday evening when in Cuba. The charge is the culmination of an investigation into Ciccone, a printing company rescued from bankruptcy and awarded a government contract to produce pesos. The vice president, charged alongside five other defendants, is accused of using middlemen to gain a 70 per cent stake in return for favours. Read more

The most casual followers of the Argentine debt saga will be familiar with the Latin term pari passu, or “equal footing” – or, in this case, equal payment to all holders of Argentine bonds, whether or not those holders took part in the country’s two restructuring programmes in 2005 and 2010 following its 2001 default.

Now Russ Dallen of Caracas Capital Markets, a veteran commentator on and broker in Latin America’s most exotic bond markets, has introduced another smattering of Latin to the story: pacta sunt servanda, or “contracts are for keeping”. Read more

Imagine an Argentina without holdouts – “it isn’t hard to do”, as John Lennon might sing. Investors are already doing so. The Buenos Aires stock market has soared 9 per cent since Cristina Fernández said last week that her country would negotiate with the holdouts, led by NML Capital. Argentine bonds have also rallied. Meanwhile, the economy has slipped into recession, partly because a shortage of foreign exchange has compressed imports.

Yet if the holdout issue was resolved, credit markets would re-open, foreign investment might soar, and currency shortages would no longer be a binding problem. Just imagine! Then the real economy would grow again, too. Read more

The US Supreme Court decision not to review the prior findings of New York courts on Argentina’s dispute with non-participants in the 2005 and 2010 debt renegotiations (the so-called holdouts) has major implications for Argentina and for those who did take part in the renegotiations. But beyond that it has a paradoxical effect: it makes the negotiation of an international bankruptcy regime inevitable. Read more

Tuesday’s event in Argentina’s fast-unfolding debt saga will be a press conference by Axel Kicillof (pictured), economy minister, at 6 pm local time in Buenos Aires. Perhaps he will add something of substance to the curiously ambiguous TV address on Monday night by Cristina Fernández, the country’s president.

Fernández pulled no punches in attacking the ‘vulture funds’ who were the winners from Monday’s ruling by the US Supreme Court. But she also left the door open for negotiation. As is often the way, the president took free rein to present herself as a promoter of a new world order, in defiance of US and UK hegemony, while the reality is a little different. Read more

Cristina Fernández, Argentina’s president, took to the airwaves soon after 9 pm local time on Monday, minutes after the USA had beaten Ghana 2-1 in the World Cup. Dressed all in white, she was in schoolmistress spirit, giving viewers a brief history of Argentina’s economic woes and the roots of its recent problems, which she put down to the military dictatorship which started with the coup d’etat of March 24, 1976. She traced those issues into the 1980s and the one-to-one dollar convertibility of the 1990s, to the 2001/2002 economic crash. She noted the change of stance initiated under her deceased husband, former president Néstor Kirchner – whom she referred to as “the president of all Argentines” – and continued under her two mandates.

She spoke for about 25 minutes (relatively little for her) and said little to clarify what Argentina’s stance now is, other than underlining that the holdouts were welcome to the same terms as those of the restructuring in 2005 and 2010 and stressing Argentina’s willingness to negotiate, while making sure to paint the “speculative” holdouts in as bad a light as possible. Read more

News on Monday that the US Supreme Court would not, after all, hear an appeal by Argentina against a lower court ruling forcing it to pay all holders of its defaulted debt came as a body blow to Beunos Aires. Investors, too, were rattled, as bond prices slumped and the country’s 5-year CDS, a form of default insurance, spiked sharply.

All eyes now are on the Casa Rosada, from which president Cristina Fernández will address the nation on television at 9 pm local time on Monday evening. Read more

José Barrionuevo, the former Barclays Capital emerging markets strategist who came up with the quantitative model that Argentina used to rationalise its punishing 2005 debt restructuring, recently wrote a guest post justifying that infamous transaction: “The framework we proposed offered a way out of default through debt sustainability, and concluded that Argentina would need roughly a 67 per cent write-off to make its outstanding debt sustainable immediately.”

The fact is that Argentina’s economy was sufficiently recovered by early 2005, largely thanks to an intervening commodity export boom, such that the government in Buenos Aires needed only a modest amount of debt-service relief from its creditors in order to regain fiscal viability. This is especially evident with the benefit of hindsight. Read more

As the US Supreme Court prepares to decide on June 12 whether or not to hear the case of the Argentine “holdouts”, the debate about the country’s debt restructuring has done little to promote understanding of the significance of the Court’s decision. It is critical to the future of debt restructuring worldwide, as an eventual ruling that allowed Argentina to pay the holdouts the same it has paid other investors would free countries in dire economic conditions and facing insurmountable debts to pursue debt sustainability, a concept that the International Monetary Fund now fully embraces and which allows for solutions that give debtor nations the opportunity to grow again. Read more

What a headache debts can cause. No one knows this better than Cristina Fernández, who after receiving mixed messages related to Argentina’s debt in recent days will have plenty to chew over on her transatlantic flight before she meets the Pope on Monday.

There was good news today when the Paris Club, a group of countries which Argentina owes about $10bn, invited their debtor to begin formal negotiations in May, after economy minister Axel Kicillof presented a repayment plan in January. Resolution of the Paris Club problem is not only a prerequisite for Argentina’s return to the international capital markets, but it could also help to get much-needed foreign investment flowing back into the country.Read more